Steady GDP growth sets US apart from peer countries
Steady GDP growth sets US apart from peer countries
The Bureau of Economic Analysis came out with an updated look at the country’s economy today. GDP grew at an annualized rate of 3.2% in the fourth quarter of 2023, down just a hair from the earlier estimate of 3.3%. But it confirms this economy has been growing at a very healthy clip for a solid year and a half. And when you poke your head up and look around the world, that’s pretty good.
Canada, the U.K., Germany — they raised interest rates to fight inflation just like we did. And you know what happened to their economies? Not good things.
“They’ve all faltered to the point where growth at the moment is running close to zero,” said Paul Ashworth, chief U.S. economist at Capital Economics.
More than faltered, those economies shrank at times last year because high and rising interest rates are a back-breaking burden, economically speaking. And yet, the U.S. has grown for six quarters in a row.
“It’s almost incredible the U.S. has taken that in stride,” Ashworth said.
So why did things turn out so differently here?
“Part of that is the fact that the disinflation process has been more rapid than anticipated,” said Lydia Boussour, a senior economist at consulting firm EY Parthenon.
We got inflation down pretty fast. “And that has allowed for some recovery in real disposable income,” she said.
So we consumers are able to spend more. Also helping us spend more: all that stimulus money from earlier on in the pandemic.
“We got a little extra boost in our consumer from all that pandemic era stimulus, we are still feeling the echoes of that,” said Lauren Saidel-Baker, an economist with the consultancy ITR Economics.
Also helping: the U.S. has raked in a ton of investment from abroad. And government spending has helped too, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.
“The government sector added around three-quarter percentage points to growth on average per quarter, which is a big additional boost to the economy,” he said.
But on top of it all, higher interest rates don’t sting as many people in the U.S. because of a peculiarity in how we do mortgages in this country. They last for 30 years.
“Households are able to lock in 30-year fixed-rate mortgages at historically low rates,” Luzzetti said.
So homeowners aren’t hit over the head when interest rates go up, and they still have money to spend out in the rest of the economy. In Canada mortgages are reset after just five years, so more people are exposed when rates suddenly rise.
But if the U.S. has been such an outlier for all these reasons is it going to stay that way?
“I do see GDP growth coming back down to earth,” said Lauren Saidel-Baker with ITR.
Growth will slow down, she and many other economists predict, but we should still be in good shape through the rest of the year, knock on wood.
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